(a) is registered in accordance with Ontario
securities law as a dealer; or
(b) is a representative registered in accordance
with Ontario securities law as a dealing
representative of a registered dealer and is
acting on behalf of the registered dealer.

3. For example, the definition of “trade” or “trading” in
section 1(1) of the Securities Act (Ontario) includes:
(a) any sale or disposition of a security
for valuable consideration;

(e) any act, advertisement, solicitation,
conduct or negotiation directly or indirectly
in furtherance of the foregoing.

4. One example that may shed light on how regulatorsand courts might regard the activities of a referringparty is the statement of the OSC in Re MomentusCorp. (2006), 29 O.S.C.B. 7408 at paragraph 80:Examples of activities found in the jurisprudencethat have fallen within the definition of atrade as “acts in furtherance” include:(a) providing potential investors withsubscription agreements to execute;(b) distributing promotional materialsconcerning potential investments;

5. In 31-103CP, under section 1.3 “FundamentalConcepts”, there is a discussion of the businesstrigger for registration. There, the CSA provide alist of factors to consider in determining whetherthe registration requirement applies. The first ofthese factors, entitled “Engaging in activities similarto a registrant”, is particularly relevant in a referralarrangement. The CSA expressed the following view:We usually consider an individual or firm engagingin activities similar to those of a registrant tobe trading or advising for a business purpose.

Examples include promoting securities or
stating in any way that the individual or firm
will buy or sell securities. If an individual or
firm sets up a business to carry out any of
these activities, we may consider them to be
trading or advising for a business purpose.

As a trust company which acts as
self-administered plan trustee for qualified
private investments, Western Pacific Trust
Company applauds steps taken by the
BC Securities Commission (BCSC) to
preempt fraud, and educate the investing
public. Their “Invest Right Program” is a
well thought out and informative tool for
any investor contemplating a purchase in
the exempt market, and no BC exempt
market issuer should hesitate in directing
investors to that site.

We are less enthusiastic about
components of the “Fraud Watch”
element of the BCSC’s Invest Right
Program. Any British Columbia resident
with a TV cannot have failed to see the
BC Securities Commission’s so-called
“Fraud-Aware” ads which have been
run relentlessly on television for the past
couple of months.

They portray a “fraudster”, a suave,well-spoken executive in an expensivelytailored suit and Trump necktie. Ina variety of scenarios, the series ofcommercials illustrate how our anti-herocalculatedly gains the trust of vulnerableindividuals, predominantly seniors, andmockingly brags about how he swindlesthem out of their life savings. “Don’tfeel bad – it happens all the time – youcouldn’t have stopped me anyway.”There is no question that suchcontemptible fraudsters exist, and, sadly,that many investors have been cheated oflarge amounts of money that they couldnot afford to lose, through investmentsspanning virtually the entire spectrum.

However, the BCSC’s target audience(the “unsuspecting investor”) viewingthese commercials could be forgivenfor thinking that any exempt marketinvestment must be a crooked scheme toseparate them from their money, and thatanyone selling such an investment mustbe a scoundrel.

The underlying, but clear,
take-away is: stay with your bank,
registered securities dealer and
publicly listed investments, because
anyone suggesting that you consider
an investment offering a higher return
cannot, and should not, be trusted.

We wholeheartedly support the
BCSC’s role in fostering a securities
market that is fair and warrants public
confidence. But their equally important
role is to cultivate a “dynamic and
competitive securities industry that
provides investment opportunities and
access to capital”. Exempt market
securities are a vital source of capital
for Canadian small and medium sized
business, which should be encouraged
and supported by government and
regulators alike.

There is a danger that, in vigorously
pursuing one part of their dual mandate
without a balancing counterpoint, the
regulator abnegates the second.

Unbalanced, negative commercials
such as these are over-protective at
best, fear-mongering at worst, and do a
disservice to the vast majority of honest
issuers, practitioners selling exempt
market securities, the reputation of the
exempt market industry as a whole, and
to the investing public at large. Let’s focus
on the fraudsters please – they are the
ones we need out of the market.